On January 1, 2016, a recently signed California law will allow revocable Transfer on Death Deeds (“TOD deeds”) to be recorded in California. Let us examine the TOD deed and where it is most likely to be appropriate.
The TOD deed is a revocable beneficiary deed, involving the gift of a residence, which is signed, dated, and notarized by the transferor. It must then, within sixty (60) days of execution, be recorded with the county where the real property is situated. The TOD deed, unlike other deeds, does not become a completed transfer (gift) until the transferor dies. While the transferor is still alive, he or she can at any time revoke the TOD deed in the following ways: By recording a written revocation with the same county recorder’s office; by recording another TOD deed; or by transferring or selling the real property and recording the irrevocable transfer deed.
The purpose of the TOD deed is to provide a less expensive option for those persons with simple estate planning goals that do not require a revocable living trust in those estate planning situations the joint tenancy or reserved life estate irrevocable deeds are not desirable approaches. Specifically, consider a parent who wants to leave his or her residence without probate outright to one child whose circumstances do not necessitate the protection of a further trust. The TOD deed is intended for this simple situation. Unlike the joint tenancy or the reserved life estate approaches the parent remains the sole owner till death and is free to do as he or she pleases with the residence. Also, like the reserved life estate deed, when the parent dies the child receives a new tax basis equal to the date of death appraised value of the residence.
If, however, the parent intends that the residence is sold, after she dies, and the proceeds divided amongst multiple children, or if one or more of these children receives SSI or Medi-Cal, then a TOD deed may not be the answer and having a Living Trust with a single trustee in charge of settling the estate and a special needs trust for the children on SSI or Medi-Cal is still well worth the additional expense.
The TOD deed also does not protect against SSI or Medi-Cal claims, either those claims against the transferor or the transferee (gift recipient). Because the TOD deed is revocable it is included in the transferor’s estate for purposes of estate recovery claims related to the transferor’s receipt of needs based public benefits. Thus, if the transferor him or herself received SSI or Medi-Cal benefits prior to death then California will place a lien on the residence when the transferor dies, regardless of the TOD deed. Accordingly, the TOD deed is not really appropriate for someone wanting to avoid SSI or Medi-Cal estate recovery claims against their residence. Instead, an irrevocable deed prior to death, usually with a retained life estate in favor of the transferor, is used in that situation.
When multiple beneficiaires are involved, having one trustee in charge of marshalling, selling and distributing the decedent’s trust assets (including assets other than the residence) will provide a compelling advantage over the TOD deed which results in multiple owners of the decedent’s residence having to cooperate amongst themselves regarding what becomes of the residence.
In summary, the TOD deed is not an equivalent to the revocable living trust. Rather, like the joint tenancy and life estate deeds, the TOD deed occupies a limited niche position. The revocable living trust remains the most comprehensive and often times best approach to dealing with one’s estate planning needs.